A lot going on early today. The early activity had the stock futures better and the 10 yr and MBS prices slightly lower. On the global front, China reported its GDP at +7.4%, about in line with forecasts but still the lowest GDP growth in the last six quarters. Industrial production was weak as was investments in fixed assets, the lowest since 2009. Q4 GDP was +7.7%; on an annualized basis China growth of 5.7% from +7.0% on Q4 data. Nothing surprising on the weaker data, China is slowing and will be a drag on global economic growth through the reminder of the year. In the UK the unemployment rate for Feb declined to a five year low to 6.9%, forecasts were for 7.1%. In the EU, prices in the 28-member European Union rose at the slowest pace for 4½ years in the 12 months to March, indicating that falling inflation rates are a problem for economies; consumer prices in the 18 nations that share the euro were 0.9% higher than in February, and 0.5% higher than in March 2013. The annual rate of inflation in the broader EU—which includes 10 countries that don't use the euro—fell to 0.6% from 0.8% in February, its lowest level since October 2009. Deflation has been one of Mario Draghi’s biggest worries recently; if it continues it will be a serious drag on its economy---and another impediment to global growth.
At 8:30 March housing starts were up 2.8% against estimates of +6.0%; at 946K units compared to 965K expected. March building permits also weaker than expected, -2.5% against -0.8%; at 990K units compared to 1014K units expected. Feb starts were revised better, from 907K units to 920K units offsetting some of the percentage decline in March. Work on single-family properties climbed 6% to a 635,000 rate in March from 599,000 the prior month. Construction of multifamily projects such as condominiums and apartment buildings fell 3.1% to an annual rate of 311,000.
At 9:15; March industrial production, expected +0.4%, jumped 0.7% from a doubling in production in Feb, Feb originally reported +0.6% now revised to +1.2%. Capacity utilization in March also much better than estimates at 79.2% against forecasts of 78.7% and up from 78.4% in Feb. Factory use now best since June 2008. Both reports add to the view the economy is on the mend. With US stock indexes already pointing to a stronger open there was no additional reaction to the better news.
AT 9:30 the DJIA opened +100, NASDAQ +36, S&P +12; 10 yr note 2.66% +4 bp with 30 yr MBS price -13 bps. From 9:30 yesterday to 9:30 this morning MBS price unchanged.
Although housing starts were a little soft this morning, the weekly MBA mortgage applications for the first time in weeks were better. Applications increased 4.3% from one week earlier. The Refinance Index increased 7% from the previous week. The seasonally adjusted Purchase Index increased 1% from one week earlier. The unadjusted Purchase Index increased 2 percent compared with the previous week and was 16% lower than the same week one year ago. The refinance share of mortgage activity increased to 52% of total applications from 51% the previous week. The adjustable-rate mortgage (ARM) share of activity remained unchanged at 8% of total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.47% from 4.56%, with points decreasing to 0.32 from 0.33 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) decreased to 4.39% from 4.49%, with points increasing to 0.18 from 0.14 (including the origination fee) for 80% loans. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 4.14% from 4.19%, with points decreasing to 0.06 from 0.16 (including the origination fee) for 80% loans.
More to come today; at 12:00 Janet Yellen will be speaking at the Economic Club of NY. Later this afternoon the Fed Beige Book will be released, a lot of detail based on the 12 Fed districts.
The Brick Wall continues to stop any rallies in the long end of the yield curve. The 10 yr cannot break through, no matter the momentary news with Russia/Ukraine and any other safety idea the 10 will not capitulate and move below it at 2.60%. Yesterday when Ukraine sent troops to re-take an air field the 10 briefly fell to 2.61% before ending the session at 2.62%, this morning the 10 at 2.66%; today a column of military vehicles flying a Russian flag and carrying dozens of armed fighters drove into eastern Ukraine. MBS prices and rates will not improve much from the present levels as long as treasuries continue to resist key levels. The Russia/Ukraine situation isn’t as much of an influence as the movement in the equity markets. As long as the key indexes continue to improve the rate markets will not decline in rate or increase in price.
RateSnapshot courtesy of TBWSratealert.com